AS Business Studies: Break-even Analysis

Hey, here are some revision notes mainly for people taking the AQA AS Business Studies Unit 1 exam but can be used for other exams too. I hope this helps you to revise! Please rate and comment on how to improve :D ps. scroll down when you open, the top part appears blank but it isnt!

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SpecificationUsing Break-Even Analysis to Candidates should understandMake Decisions how start-up businesses may· contribution and contribution use contribution and break-per unit even to analyse the impact of· calculation of break-even different costs and prices, andoutput make decisions on whether to· construction of break-even start the business.charts Candidates should be aware of· analysing the effects of the strengths and weaknesseschanging variables on break- of break-even analysis.even charts.…read more

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ContributionContribution looks at the profit made on individual productsIt is used in calculating how many items need to be sold to cover all the business'total costs (variable and fixed) Contribution per unit = Selling price of one unit ­ variable costs of one unit Total contribution can also be calculated as: Revenue ­ Variable Costs OR Contribution per unit x number of units sold Profit = Total Contribution ­ Fixed CostsImportant things to remember about contribution: ­ It can be increased…read more

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Break EvenA business is said to "break-even" when it is earning enough sales to cover all itscosts.The break-even point happens when total sales = total costs.…read more

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Calculating Break EvenThree methods of calculating break-even level of output ­ A table (or spreadsheet) showing sales and costs over different levels of output ­ A formula which you can use to calculate break-even output ­ A graph which charts sales and costsIn order to do break-even analysis, you have to make some importantassumptions ­ Selling price per unit stays the same, regardless of the amount produced ­ Variable costs vary in direct proportion to output ­ i.e.…read more

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Method 2 ­ Using a Formula Contribution per unit = selling price per unit ­ variable cost per unit Total Contribution = Sales Revenue ­ Variable Costs Total Contribution ­ Fixed Costs = Profit Fixed costs (£)Break-even output (units) = selling price per unit ­ variable cost per unit (Contribution per unit (£)) Tip: If the information is available, it is always quicker and easier to use a break- even formula rather than use a table or draw a chart…read more

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Method 3 ­ Break Even Chart It is unlikely that you will be asked to complete a break-even chart in BUSS1 (not enough time!) However, it is important to understand the concepts used in constructing the chart 100 90 Profit 80Sales and costs (£'000) 70 60 50 Fixed costs Loss 40 30 20 10 0 1 2 3 4 5 6 7 8 9 10 Units of Output (`000)…read more

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Margin of Safety Margin of safety/safety margin = the amount by which demand can fall before a firm incurs losses i.e.…read more

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Changes to Break Even/Contribution The purpose of looking at the effect of changes in assumptions is to understand what happens to profit as key data in the business changes. This is usually referred to as "what-if analysis". What-if analysis can be done using any of the three methods. However, it is much easier and quicker to use the break-even formulae rather than drawing charts of new tables.…read more